About Piponomics

Economics plays a huge role in the foreign exchange market. I enjoy looking at economic trends and trying to see how it may affect currencies, and life in general. I will post my thoughts and observations here. I'm throwing macroeconomics, forex trading, pop culture, and everyday life into a pot and hopefully the final product are lessons about the FX market that's easy to understand.

Economic Snapshot: Australia

Heads up, Aussie traders! We’ve got the RBA interest rate statement coming our way next week so lemme give y’all a head start on reviewing the latest reports if you’re planning on trading the event.

Note: Like my other Economic Snapshots, there are nifty tables at the bottom, so you can skip to that part if you’re in a rush. But if you wanna put things in perspective, I suggest you check out these bullet points which highlight the underlying details and trends that give the numbers their proper context.

Growth

The Australian economy expanded 0.5% quarter-on-quarter, which is slower than Q1’s 1.0% growth figure, which was already downgraded from the initially reported 1.1% reading.

Still, Q2 GDP is up 3.3% on a year-over-year basis, which is fastest annual pace of growth since Q2 2012, up from the previous period’s 3.1% pace.

The main driver for growth was a 15.5% surge in government investment, followed by government spending and consumer spending.

On the other hand, business investment fell 12.4% during Q2 and shaved off 0.8% from overall growth. Trade activity also subtracted 0.2% from Q2 GDP.

Employment

The Australian economy lost 9.8K jobs in September as opposed to showing the 15.2K gain that analysts were expecting.

Previous reports also suffered downgrades, painting an even grimmer picture of the jobs market. August net job losses were revised from 3.9K to 6.8K while the unemployment rate was revised from 5.6% to 5.7%.

Labor force participation slipped from 64.7% to 64.5%, its lowest level in nearly two years.

Full-time employment fell by 53K, its sharpest monthly tumble since April 2011.

Underemployment rose to a record high of 8.7% as job-hunters have been settling for part-time work and logging in fewer hours instead of being able to find full-time positions.

Leading inflation indicators such as import prices and PPI have fallen short of estimates for Q3, signaling potential downside pressure later on.

Business & Consumer Sentiment

A few green shoots are seen from the AIG readings, as the construction and services industries reported improvements from their August slump.

The NAB reports reflected an improvement in sentiment but a slight dip in business conditions.

Retail sales recovered in August after staying flat in July, posting a stronger than expected 0.4% gain.

However, the annual trend is still heading south, as retail sales inched from 2.7% to 2.6% on a year-over-year basis in August.

Trade Activity

The trade deficit narrowed for back-to-back months, suggesting that activity could be turning a corner.

However, exports were unable to follow through on its strong 2.8% jump in July as it stayed flat in August.

The slide in imports paused as it also showed a flat reading in August after sliding by 1.9% and 0.4% in the past couple of months.

Putting it All Together

First, the good stuff. Price levels have shown a bit more upside momentum, keeping annual CPI within the RBA’s target range but short of the 2% ultimate goal. Business conditions seem to be priming for a rebound in the third quarter after its August slump while consumer spending also picked up.

Trade activity is cruising by, with imports and exports mostly flat in August but enough to yield a smaller shortfall for the month. Leading inflation indicators point to a bit of a correction after the strong surge in commodity prices recently.

On the other hand, employment remains a thorn in Australia’s side, as the latest figures reflected weaknesses beneath the surface. Labor force participation continues to slide, indicating lower confidence in job prospects, while underemployment is on the rise as Aussies seem to be settling for part-time work.

This might lead RBA head Philip Lowe might put the jobs market under the microscope once more, as he previously warned that “the case for moving more quickly to cut rates would be strengthened in a world where the labor market was deteriorating.” Then again policymakers have hinted that they’re keeping closer tabs on inflation, and the quarterly CPI results might be enough to keep the RBA on its neutral stance in their next statement.

More from our Blogs

Risk sentiment drove price action for the most part during today's morning London session. However, Brexit-related news resulted in the pound getting pushed this way and that. The ECB's policy decision from yesterday, meanwhile, was still apparently weighing down on the euro. ...